subject: Trading Banking Stocks And Shares In 2010 [print this page] It looks like some of the companies that one would expect to be at the forefront of any world recovery have started to raise the warning flags again. A series of economic analysis announcements are struggling to register much joy for the heavily indebted western nations.
It is still possible that the banks were in danger of doing a Japan over their debt exposure to the large number of leveraged buyouts of 2005-2007.
Yes, the banks are not writing off much of the debt however this is in the knowledge that most deals still have a few years to run. The banks are probably hoping for a bit of an economic turn around to help them out. With interest rates down below 1%, the temptation to run the risk is high.
None of the worlds banks wish was to ask the various governments for more money as the strings attached are far from charitable. And if the financial system can build up cash reserves over the next few years until 2013/15, when much of the debt is due for repayment, the banks will be in a much better position to take equity/debt deal replacements.
So if the banking stock looks volatile, what are the options for the investor? A trading account where you can both speculate on stock to go up and down may be the way forward.
If thats what you are looking for then a spread betting account might suit your needs.
With financial spread betting you do not purchase the stocks or assets. This means that you are not constrained to simply speculating on an increase in value. If your research indicated a weaker market, you could spread bet on the market to decrease.
Also, spread trading offers a wide range of markets so that investors are not just limited to stocks and shares. Stock market index values, foreign exchange pairs, commodity prices and interest rates are all tradable from the same account.
So how does it work? Lets say you wanted spread bet on the UKs Barclays Bank.
Note that you could also bet on US Banks, German Car markers or even some of the major Indian companies.
Looking at Barclays though, at the moment there is a spread betting price of 326.9p - 328.2p.
Therefore, you could spread trade on Barclays to move above 328.2p or below 326.9p.
When you spread bet, you trade on every unit the market goes up or down; in the case of the Barclays market a unit is 1p of the share's price movement.
So, you might choose to spread bet 3 for every penny Barclays stock increases.
If you were to buy Barclays at 328.2p and the share increased then you might see the spread move to 356.0p - 357.3p. If this were the case, you could decide to take your profits by closing your trade at 356.0p.
Your Profits (or Losses) = (closing price of the market - opening price of the market) x stake per penny
Your Profits (or Losses) = (356.0p - 328.2p) x 3 per penny stake
Your Profits (or Losses) = 27.8p x 3 per penny
Your Profits (or Losses) = 83.40 profit
Of course, if the market had decreased to, for example, 303.0p - 304.3p, you could choose to close your spread bet to prevent further losses. Therefore, you would sell back at 303.0p.
With the same 3 per penny stake:
Your Profits (or Losses) = (closing price of the market - opening price of the market) x stake per penny
Your Profits (or Losses) = (303.0p - 328.2p) x 3 per penny stake
Your Profits (or Losses) = -25.2p x 3 per penny
Your Profits (or Losses) = -75.60 loss
As the above illustrates, when speculating you must always remind yourself that the markets can go down as well as up. With spread betting you can lose more than your original stake or investment.
And like the adverts say, spread betting carries a high level of risk. You should only speculate with funds you can afford to lose. Before trading, please ensure that spread betting matches your investment requirements, familiarise yourself with the risks involved and, if necessary, seek independent advice.
If you are still looking to trade, where should you go? Make sure the firm you trade with is Authorised and Regulated by the Financial Services Authority, this generally ensures a certain quality level. Companies like Financial Spreads and ShortsandLongs will let you trade on all of the markets mentioned above.
by: Adam Jepsen
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